Capital Markets Update ESMA offers insight on potential EU market abuse issues arising from social media driven share trading
Following recent events whereby various US stocks have experienced high price volatility due to a significant accumulation of net short positions and concerted action by retail investors due to information shared on social media, the European Securities and Markets Authority (“ESMA”) has issued a statement in relation to the potential for similar situations arising in the EU as well as the risks which retail investors are exposed to when basing trading decisions exclusively on views, recommendations and sharing of trading intentions on social media networks and unregulated platforms.
Apart from highlighting the risks involved in trading based on unreliable and unverified information gathered solely through social media networks, ESMA provided some insight on their views on the relevant market abuse issues under EU law, namely that:
Merely discussing the opportunity to buy or sell the shares of an issuer does not, in and of itself, constitute market abuse; but that
Organising or executing coordinated strategies to trade or place orders at certain conditions and times to move a share’s price could constitute market manipulation; and
That the posting of information on social media about an issuer or a financial instrument, if considered to be false or misleading, may also be market manipulation
ESMA and the National Competent Authorities intend to continue analysing market events/trends and adopting further initiatives as appropriate.
By Neil Bezzina, February 18, 2021